Question 1

The break-even point is:

Accepted Answer

A)  the point where zero contribution margin is earned. 
B)  the point where zero profit is earned. 
C)  the point where selling price just equals variable cost. 
D)  equal to sales revenue less fixed costs. 
A)  the point where zero contribution margin is earned. 
B)  the point where zero profit is earned. 
C)  the point where selling price just equals variable cost. 
D)  equal to sales revenue less fixed costs.

Question 2

Jerome Corp. has fixed costs of $500,000 and a contribution margin ratio of 40%. Currently, sales are $3,000,000. What is Jerome's margin of safety?

Accepted Answer

A)  $1,750,000 
B)  $3,500,000 
C)  $5,250,000 
D)  $7,000,000 
A)  $1,750,000 
B)  $3,500,000 
C)  $5,250,000 
D)  $7,000,000

Question 3

Cantor Products sells a product for $75. Variable costs per unit are $50, and monthly fixed costs are $75,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $200,000?
c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage?
d. If sales decrease by 30% from that level, by what percentage will profits decrease?

Accepted Answer

a. 3,000 units = $75,000/($75

Question 4

Keith Corp. has sales of $200,000, a contribution margin ratio of 35%, and a profit of $40,000. If 10,000 units were sold, what is the variable cost per unit?

Accepted Answer

A)  $13.00 
B)  $20.00 
C)  $7.00 
D)  $3.00 
A)  $13.00 
B)  $20.00 
C)  $7.00 
D)  $3.00

Question 5

Akron Corp. had a margin of safety of $500,000 last month, with sales revenue of $1,250,000 and fixed costs of $150,000.
a. What are break-even sales?
b. What is the contribution margin ratio?
c. How much profit did Akron earn last month?
d. How much would sales have to be for Akron to earn profit of 500,000?

Accepted Answer

a. $750,000 = $1,250,000 - $50

Question 6

Which of the following statements about leverage is not correct?

Accepted Answer

A)  Measuring the degree of operating leverage is a form of measuring risk. 
B)  Decisions about the use of debt or equity affect a company's financial leverage. 
C)  Decisions about whether to use fixed or variable costs affect a company's operating leverage. 
D)  The degree of financial leverage measures the extent to which fixed costs are used to operate the business. 
A)  Measuring the degree of operating leverage is a form of measuring risk. 
B)  Decisions about the use of debt or equity affect a company's financial leverage. 
C)  Decisions about whether to use fixed or variable costs affect a company's operating leverage. 
D)  The degree of financial leverage measures the extent to which fixed costs are used to operate the business.

Question 7

The break-even point is the point at which profit equals:

Accepted Answer

A)  zero. 
B)  the target. 
C)  variable costs. 
D)  less than five percent. 
A)  zero. 
B)  the target. 
C)  variable costs. 
D)  less than five percent.

Question 8

Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume?

Accepted Answer

A)  Each method provides a different way to express the CVP relationships, yet answers the same basic question. 
B)  Choice of method depends, in part, on personal preference. 
C)  Choice of method depends, in part, on the available information. 
D)  Each method yields a different final answer to be used in analysis. 
A)  Each method provides a different way to express the CVP relationships, yet answers the same basic question. 
B)  Choice of method depends, in part, on personal preference. 
C)  Choice of method depends, in part, on the available information. 
D)  Each method yields a different final answer to be used in analysis.

Question 9

Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $75,000. What is Idaho's margin of safety?

Accepted Answer

A)  $28,000 
B)  $35,000 
C)  $42,000 
D)  $70,000 
A)  $28,000 
B)  $35,000 
C)  $42,000 
D)  $70,000

Question 10

Plymouth Corp. sells units for $100 each. Variable costs are $75 per unit, and fixed costs are $200,000. If Plymouth leases a new machine, production will be more efficient, saving $5 per unit. If Plymouth plans to sell 12,000 units, at what lease cost will Plymouth be indifferent between leasing and not leasing the new machine?

Accepted Answer

A)  $10,000 
B)  $40,000 
C)  $60,000 
D)  $80,000 
A)  $10,000 
B)  $40,000 
C)  $60,000 
D)  $80,000

Question 11

Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units are sold, profits equaled $35,000. How many units must be sold to break-even?

Accepted Answer

A)  32,300 
B)  20,400 
C)  24,366 
D)  8,500 
A)  32,300 
B)  20,400 
C)  24,366 
D)  8,500

Question 12

What component of the profit equation should be set equal to zero to find the breakeven point?

Accepted Answer

A)  Total sales revenue 
B)  Total variable costs 
C)  Total fixed costs 
D)  Profit 
A)  Total sales revenue 
B)  Total variable costs 
C)  Total fixed costs 
D)  Profit

Question 13

A company is debating whether to change its cost structure so that variable costs increase from $4 per unit to $5 per unit but fixed costs decrease from $400,000 to $300,000. If it were to implement the change at its current production level of 100,000, profit would not change. What would happen to the company's profit if the change were implemented and production increased?

Accepted Answer

A)  It will stay the same. 
B)  It will increase. 
C)  It will decrease. 
D)  It could increase or decrease. 
A)  It will stay the same. 
B)  It will increase. 
C)  It will decrease. 
D)  It could increase or decrease.

Question 14

Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Peggy to break even?

Accepted Answer

A)  $166,667 
B)  $90,000 
C)  $30,000 
D)  $280,000 
A)  $166,667 
B)  $90,000 
C)  $30,000 
D)  $280,000

Question 15

Last month Lyle Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for Lyle to earn a $100,000 profit?

Accepted Answer

A)  $66,667 
B)  $83,333 
C)  $220,000 
D)  $400,000 
A)  $66,667 
B)  $83,333 
C)  $220,000 
D)  $400,000

Question 16

Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. By how much would sales be able to decrease for Empire to still break even?

Accepted Answer

A)  $90,000 
B)  $83,333 
C)  $166,667 
D)  $280,000 
A)  $90,000 
B)  $83,333 
C)  $166,667 
D)  $280,000

Question 17

Jasmine Inc. sells a product for $50 per unit. Variable costs per unit are $30, and monthly fixed costs are $150,000. Answer the following questions:
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $100,000?
c. Assume they achieve the level of sales required in part b, what is the margin of safety in sales dollars?

Accepted Answer

a. 7,500 units = $150,000/($50

The break-even point is:

Jerome Corp. has fixed costs of $500,000 and a contribution margin ratio of 40%. Currently, sales are $3,000,000. What is Jerome's margin of safety?

Keith Corp. has sales of $200,000, a contribution margin ratio of 35%, and a profit of $40,000. If 10,000 units were sold, what is the variable cost per unit?

Which of the following statements about leverage is not correct?

The break-even point is the point at which profit equals:

Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume?

Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $75,000. What is Idaho's margin of safety?

Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units are sold, profits equaled $35,000. How many units must be sold to break-even?

What component of the profit equation should be set equal to zero to find the breakeven point?

Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Peggy to break even?

Last month Lyle Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for Lyle to earn a $100,000 profit?

Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. By how much would sales be able to decrease for Empire to still break even?

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

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Exam 6: Cost-Volume-Profit Analysis

The break-even point is:

Jerome Corp. has fixed costs of $500,000 and a contribution margin ratio of 40%. Currently, sales are $3,000,000. What is Jerome's margin of safety?

Keith Corp. has sales of $200,000, a contribution margin ratio of 35%, and a profit of $40,000. If 10,000 units were sold, what is the variable cost per unit?

Which of the following statements about leverage is not correct?

The break-even point is the point at which profit equals:

Which of the following statements is not correct about the methods managers use to model the relationship between revenues, costs, profit, and volume?

Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $75,000. What is Idaho's margin of safety?

Dancer Corp. has a selling price of $20 per unit, and variable costs of $10 per unit. When 12,000 units are sold, profits equaled $35,000. How many units must be sold to break-even?

What component of the profit equation should be set equal to zero to find the breakeven point?

Last month Peggy Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Peggy to break even?

Last month Lyle Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for Lyle to earn a $100,000 profit?

Last month Empire Company had a $30,000 profit on sales of $250,000. Fixed costs are $60,000 a month. By how much would sales be able to decrease for Empire to still break even?

Introduction to Managerial Accounting

Job-Order Costing

Process Costing

Activity-Based Cost Management

Cost Behavior and Estimation

Incremental Analysis for Short-Term Decision Making

Budgeting and Planning

Standard Costing and Variances

Decentralized Performance Evaluation

Capital Budgeting

Statement of Cash Flows

Financial Statement Analysis

Filters